Essays on regulation and risk

In this thesis, we investigate some aspects of the interplay between economic regulation and the risk of the regulated firm. In the first chapter, the main goal is to understand the implications a mainstream regulatory model (Laffont and Tirole, 1993) have on the systematic risk of the firm. We generalize the model in order to incorporate aggregate risk, and find that the optimal regulatory contract must be severely constrained in order to reproduce real-world systematic risk levels. We also consider the optimal profit-sharing mechanism, with an endogenous sharing rate, to explore the relationship between contract power and beta. We find results compatible with the available evidence that high-powered regimes impose more risk to the firm. In the second chapter, a joint work with Daniel Lima from the University of California, San Diego (UCSD), we start from the observation that regulated firms are subject to some regulatory practices that potentially affect the symmetry of the distribution of their future profits. If these practices are anticipated by investors in the stock market, the pattern of asymmetry in the empirical distribution of stock returns may differ among regulated and non-regulated companies. We review some recently proposed asymmetry measures that are robust to the empirical regularities of return data and use them to investigate whether there are meaningful differences in the distribution of asymmetry between these two groups of companies. In the third and last chapter, three different approaches to the capital asset pricing model of Kraus and Litzenberger (1976) are tested with recent Brazilian data and estimated using the generalized method of moments (GMM) as a unifying procedure. We find that ex-post stock returns generally exhibit statistically significant coskewness with the market portfolio, and hence are sensitive to squared market returns. However, while the theoretical ground for the preference for skewness is well established and fairly intuitive, we did not find supporting evidence that investors require a premium for supporting this risk factor in Brazil.

The forward- and the equity-premium puzzles: two symptoms of the same illness?

Using information on US domestic financial data only, we build a stochastic discount factor—SDF— and check whether it accounts for foreign markets stylized facts that escape consumption based models. By interpreting our SDF as the projection of a pricing kernel from a fully specified model in the space of returns, our results indicate that a model that accounts for the behavior of domestic assets goes a long way toward accounting for the behavior of foreign assets prices. We address predictability issues associated with the forward premium puzzle by: i) using instruments that are known to forecast excess returns in the moments restrictions associated with Euler equations, and; ii) by comparing this out-of-sample results with the one obtained performing an in-sample exercise, where the return-based SDF captures sources of risk of a representative set of developed and emerging economies government bonds. Our results indicate that the relevant state variables that explain foreign-currency market asset prices are also the driving forces behind U.S. domestic assets behavior.

Cash flow and discount rate risk decomposition and ICAPM for the US and brazilian stock markets

Esse trabalho é uma aplicação do modelo intertemporal de apreçamento de ativos desenvolvido por Campbell (1993) e Campbell e Vuolteenaho (2004) para as carteiras de Fama-French 2x3 brasileiras no period de janeiro de 2003 a abril de 2012 e para as carteiras de Fama-French 5x5 americanas em diferentes períodos. As varíaveis sugeridas por Campbell e Vuolteenaho (2004) para prever os excessos de retorno do mercado acionário americano no period de 1929 a 2001 mostraram-se também bons preditores de excesso de retorno para o mercado brasileiro no período recente, com exceção da inclinação da estrutura a termo das taxas de juros. Entretanto, mostramos que um aumento no small stock value spread indica maior excesso de retorno no futuro, comportamento que não é coerente com a explicação para o prêmio de valor sugerida pelo modelo intertemporal. Ainda, utilizando os resíduos do VAR preditivo para definir o risco de choques de fluxo de caixa e de choques nas taxas de desconto das carteiras de teste, verificamos que o modelo intertemporal resultante não explica adequadamente os retornos observados. Para o mercado norte-americano, concluímos que a abilidade das variáveis propostas para explicar os excessos de retorno do mercado varia no tempo. O sucesso de Campbell e Vuolteenaho (2004) em explicar o prêmio de valor para o mercado norte-americano na amostra de 1963 a 2001 é resultado da especificação do VAR na amostra completa, pois mostramos que nenhuma das varíaveis é um preditor de retorno estatisticamente significante nessa sub-amostra.

A risk management approach to emerging market's sovereign debt sustainability with an application to Brazilian data

In this paper we study the question of debt sustainability from a risk management perspective. The debt accumulation equation for any country involves variables that are stochastic and closely intertwined. When these aspects are taken into consideration the notion of debt sustainability is expanded to studying the stochastic properties of the debt dynamics. We illustrate the methodology by studying the Brazilian case. We find that even though the debt could be sustainable in the absence of risk, there are paths in which it is clearly unsustainable. Furthermore, we show that properties of the debt dynamics are closely related to the spreads on sovereign dollar denominated debt.

Portfolio choice with a correlated background risk : theory and evidence

We extend the static portfolio choice problem with a small background risk to the case of small partially correlated background risks. We show that respecting the theories under which risk substitution appears, except for the independence of background risk, it is perfectly rational for the individual to increase his optimal exposure to portfolio risk when risks are partially negatively correlated. Then, we test empirically the hypothesis of risk substitutability using INSEE data on French households. We find that households respond by increasing their stockholdings in response to the increase in future earnings uncertainty. This conclusion is in contradiction with results obtained in other countries. So, in light of these results, our model provides an explanation to account for the lack of empirical consensus on cross-country tests of risk substitution theory that encompasses and criticises all of them.

Do equity and foreign currency risk premiums display common patterns?

In da Costa et al. (2006) we have shown how a same pricing kernel can account for the excess returns of the S&:P500 over the US short term bond and of the uncovered over the covered trading of foreign government bonds. In this paper we estimate and test the overidentifying restrictiom; of Euler equations associated with "ix different versions of the Consumption Capital Asset Pricing I\Iodel. Our main finding is that the same (however often unreasonable) values for the parameters are estimated for ali models in both nmrkets. In most cases, the rejections or otherwise of overidentifying restrictions occurs for the two markets, suggesting that success and failure stories for the equity premium repeat themselves in foreign exchange markets. Our results corroborate the findings in da Costa et al. (2006) that indicate a strong similarity between the behavior of excess returns in the two markets when modeled as risk premiums, providing empirical grounds to believe that the proposed preference-based solutions to puzzles in domestic financiaI markets can certainly shed light on the Forward Premium Puzzle.

Monetary policy, default risk and the exchange rate

In a country with high probability of default, higher interest rates may render the currency less attractive if sovereign default is costly. This paper develops that intuition in a simple model and estimates the effect of changes in interest rates on the exchange rate in Brazil using data from the dates surrounding the monetary policy committee meetings and the methodology of identification through heteroskedasticity. Indeed, we find that unexpected increases in interest rates tend to lead the Brazilian currency to depreciate. It follows that granting more independence to a central bank that focus solely on inflation is not always a free-lunch.

Delay from fracture to hospital admission: a new risk factor for hip fracture mortality?

Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq)

The country brand trap

Includes bibliography

Prevalence of cardiovascular risk factors among Latin American adolescents: a multilevel analysis

High blood pressure (HBP) and obesity is a well-established major risk factor for stroke and coronary heart disease. However, the literatures are scarce about these informations in adolescents from low-and-middle income countries. This school-based survey was carried out among students from Maringá (Brazil) and Buenos Aires (Argentina) selected random sampling. We studied 991 Brazilian adolescents (54.5% girls) in the age range of 14-18 years. In Argentina, we studied 933 adolescents (45.9% female) in the age range of 11-17 years. The outcomes of this study are general obesity, abdominal obesity and HBP. The associated factors analysed were gender, age and health behaviours. The prevalence of obesity was 5.8% in Brazil and 2.8% in Argentina, the prevalence of abdominal obesity was 32.7% in Brazil and 11.1% in Argentina, the prevalence of HBP was 14.9% in Brazil and 13.5% in Argentina. The multilevel analysis showed that older adolescents (>14 years old) have a little likelihood of being overweight, whereas male adolescents are more likely to be obese and have HBP. The abdominal obesity in both indicators were not associated with the independent variables. The prevalence of cardiovascular risk factors is high in Latin American adolescents independent of each country, and was associated with male gender.Journal of Human Hypertension advance online publication, 15 August 2013; doi:10.1038/jhh.2013.74.

Risk factors and presence of antibodies to Brucella canis and smooth Brucella in dogs from the municipality of Araguaina, Tocantins, Brazil

Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq)

The study of cardiovascular risk in adolescents - ERICA: rationale, design and sample characteristics of a national survey examining cardiovascular risk factor profile in Brazilian adolescents

Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq)

Physical and psychosocial risk factors for musculoskeletal disorders in Brazilian and Italian nurses

As part of the international CUPID investigation, we compared physical and psychosocial risk factors for musculoskeletal disorders among nurses in Brazil and Italy. Using questionnaires, we collected information on musculoskeletal disorders and potential risk factors from 751 nurses employed in public hospitals. By fitting country-specific multiple logistic regression models, we investigated the association of stressful physical activities and psychosocial characteristics with site-specific and multisite pain, and associated sickness absence. We found no clear relationship between low back pain and occupational lifting, but neck and shoulder pain were more common among nurses who reported prolonged work with the arms in an elevated position. After adjustment for potential confounding variables, pain in the low back, neck and shoulder, multisite pain, and sickness absence were all associated with somatizing tendency in both countries. Our findings support a role of somatizing tendency in predisposition to musculoskeletal disorders, acting as an important mediator of the individual response to triggering exposures, such as work-load.

Gender-based violence and socioeconomic inequalities: Does living in more deprived neighbourhoods increase women's risk of intimate partner violence?

This study investigates the influence of neighbourhood socioeconomic conditions on women's likelihood of experiencing intimate partner violence (IPV) in Sao Paulo, Brazil. Data from 940 women who were interviewed as part of the WHO multi-country study on women's health and domestic violence against women, and census data for Sao Paulo City, were analyzed using multilevel regression techniques. A neighbourhood socioeconomic-level scale was created, and proxies for the socioeconomic positions of the couple were included. Other individual level variables included factors related to partner's behaviour and women's experiences and attitudes. Women's risk of IPV did not vary across neighbourhoods in Sao Paulo nor was it influenced by her individual socioeconomic characteristics. However, women in the middle range of the socioeconomic scale were significantly more likely to report having experienced violence by a partner. Partner behaviours such as excessive alcohol use, controlling behaviour and multiple sexual partnerships were important predictors of IPV. A women's likelihood of IPV also increased if either her mother had experienced IPV or if she used alcohol excessively. These findings suggest that although the characteristics of people living in deprived neighbourhoods may influence the probability that a woman will experience IPV, higher-order contextual dynamics do not seem to affect this risk. While poverty reduction will improve the lives of individuals in many ways, strategies to reduce IPV should prioritize shifting norms that reinforce certain negative male behaviours. (C) 2012 Elsevier Ltd. All rights reserved.